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KFNX Blog: What Business Are You In?

‘What Business Are You In?’ This the famous question from the classic business consultant, Peter Drucker. This was one of Drucker’s key questions for management to figure out, the who, what, where, why and how of their business.

The point of the question was to really challenge business owners to understand what their real objectives are.

Don’t assume you know what business you’re in. Drucker loved to ask executives “What business are you in?” because they often missed the mark, defining their organization in terms that were too narrow or not properly attuned to customers’ needs. “That the question is so rarely asked—at least in a clear and sharp form—and so rarely given adequate study and thought, is perhaps the most important single cause of business failure,” Drucker wrote in The Practice of Management.

Do understand your business? Do you know how to bring value to your customers to keep them long term?

A great modern example of this is Starbucks. Most people would assume Starbucks is in the coffee business. Obviously they do sell coffee, but the real business they are in according to its CEO Howard Shultz is ‘customer service’.

People can go to lots of places for a cup of coffee just as good and probably cheaper. They choose Starbucks for the atmosphere. Customers think of the Seattle brand as a unique experience and this allows them to charge more.

Harley Davidson does not sell motorbikes. It sells the concept of freedom to middle-aged men.

Apple does not sell I-Pads. It sells a lifestyle on the cutting edge. It sells coolness.

What is it that your business really sells? What is the true value that customers get from your products or services?

You have to know the answers to these questions to provide that value. Your business will never grow, or more importantly adapt until you understand this.

Companies that thought they were in the ice supply business but were really in food and drink storage were eliminated by refrigerators.

Harvard business professor, Theo Levitt called this Marketing Myopia. This happens when a well established business gets too comfortable, and does not really understand their business. Eventually they lose market share because they cannot see times changing and fail to keep innovating.

A great Steve Jobs quote - “If we don't cannibalize ourselves, someone else will,” – he was discussing the need to adapt and understand and improve your products or a competitor will beat you to the upgrade.

So let’s return to the main point. To answer this important question you need to understand your product. How do customers use your product? What is the end result and people get your product? You may need consultants to help you, or have to survey your customers.

You can have the best employees, the greatest systems, and big budgets, but if you do not understand this concept and create a real vision for your company it can all be wasted effort.

Answer the question – What business am I in? Then create an identity for your business, a vision. Mold the mission statement around this vision. Train your employees to embrace and carry out this vision.

You will make all of your business decisions based on if that decision helps to achieve your vision. This will lead to more efficiency and you will have a lot less wasted effort. This is how a company creates a huge brand and thrives.

Real leadership comes from understanding the main objective and then organizing those around you carry out your vision.